Tag: Federal Reserve (The Fed)

Trump shifts from tax cuts to tariffs, disregarding economic red flags
One day after House Republicans approved an expensive package of tax cuts that rattled financial markets, President Trump pivoted back to his other signature policy priority, unveiling a battery of tariff threats that further spooked investors and raised the prospects of higher prices on American consumers.
For a president who has fashioned himself as a shrewd steward of the economy, the decision to escalate his global trade war on Friday appeared curious and costly. It capped off a week that saw Mr. Trump ignore repeated warnings that his agenda could worsen the nation’s debt, harm many of his own voters, hurt the finances of low-income families and contribute far less in growth than the White House contends.
The tepid market response to the president’s economic policy approach did little to sway Mr. Trump, who chose on Friday to revive the uncertainty that has kept businesses and consumers on edge. The president threatened 50 percent tariffs on the European Union, and a 25 percent tariff on Apple. Other tech companies, he said, could face the same rate.
Since taking office, Mr. Trump has raced to enact his economic vision, aiming to pair generous tax cuts with sweeping deregulation that he says will expand America’s economy. He has fashioned his steep, worldwide tariffs as a political cudgel that will raise money, encourage more domestic manufacturing and improve U.S. trade relationships.
But for many of his signature policies to succeed, Mr. Trump will have to prove investors wrong, particularly those who lend money to the government by buying its debt.
So far, bond markets are not buying his approach. Where Mr. Trump sees a “golden age” of growth, investors see an agenda that comes with more debt, higher borrowing costs, inflation and an economic slowdown. Investors who once viewed government debt as a relatively risk-free investment are now demanding that the United States pay much more to those who lend America money.
That is on top of businesses, including Walmart, that say they may have to raise prices as a result of the president’s global trade war. The onslaught of policy changes has also left the Federal Reserve frozen in place, unsure as to when the economy will call for lower interest rates in the face of persistent uncertainty. As a result, borrowing costs for mortgages, car loans and credit cards remain onerous for Americans.
Still, Mr. Trump continues to proclaim that his policies will bring prosperity. This week, the White House released data showing that its tax cuts could increase U.S. output as much as 5.2 percent in the short term, compared with the gains it would have achieved if the bill is not adopted. The administration has stood largely alone in offering such rosy predictions about the effects of Mr. Trump’s policies on businesses, average workers and the nation’s fiscal future.
In report after report, economists this week predicted that Mr. Trump’s signature tax package could add well over $3 trillion to the national debt. Some found that the measure is unlikely to deliver substantial economic growth, and could enrich the wealthiest Americans while harming the poorest, millions of whom could soon lose access to federal aid for food and health insurance.
The tax cuts are largely an extension of ones that Congress passed in 2017, meaning that few taxpayers will see an increase to their after-tax income. In fact, some might see their financial situation deteriorate: Many of the lowest earners may even see about $1,300 less on average under the Republican bill in 2030, according to the nonpartisan Penn Wharton Budget Model, which factored in the proposed cuts to federal safety-net programs.
Facing an onslaught of red flags and dour reports, the White House has remained bullish.
“I think folks have cried wolf a lot,” Stephen Miran, the chairman of the president’s Council of Economic Advisers, said in an interview, stressing that Mr. Trump’s agenda would “grow the economy.”
In the past, investors and businesses might have rejoiced over Mr. Trump’s grand proclamations about lowering taxes, reducing regulations and opening access to foreign markets. But the most common reaction this week was concern over Mr. Trump’s sclerotic approach, which has renewed fears that the economy could enter a prolonged period of pain.
“It’s possible that you’re going to get a big benefit to growth, but the costs are so obvious and so clear that I think it’s hard to put a lot of faith in that at the moment,” said Eric Winograd, an economist at the investment firm AllianceBernstein.
By most metrics, Mr. Trump inherited a solid economy. Layoffs were low when he took office, and have stayed that way, helping to keep the unemployment rate stable. And consumers, even amid elevated prices, continued to spend apace.
Four months into his second term, however, there are signs that the economy is beginning to come under greater strain, in what experts worry is a prelude to a more substantive slowdown. While economists do not expect the economy to tip fully into a recession, they say Mr. Trump’s tariffs in particular have raised the odds of a downturn, as both businesses and consumers begin to cut back.
Many of the president’s allies maintain that Mr. Trump is doing exactly as he promised during the 2024 presidential campaign, acting out of a belief that his vision can spur robust economic growth. In doing so, that can help to create jobs, raise wages and generate the sort of activity that can lessen the nation’s fiscal imbalance, said Stephen Moore, a conservative economist who served as one of Mr. Trump’s advisers during his first term.
“So many of these problems are the result of low growth,” Mr. Moore said of the economy. Mr. Trump is aiming to get growth back up to 3 percent, Mr. Moore added.
But the administration has at times ignored a steady stream of data suggesting its policies may not deliver those gains.
The disparity between vision and reality became apparent Thursday as House Republicans voted to advance a bill that would extend the set of tax cuts enacted in the president’s first term. The measure also included Mr. Trump’s campaign promises to eliminate taxes on tips and overtime pay.
An analysis released Thursday by the Joint Committee on Taxation, a nonpartisan advisory arm of Congress, found that the new Republican measure may raise the average rate of growth in U.S. output by only 0.03 percentage points compared with current expectations through 2034. The finding cast doubt on the administration’s long-held assertion that economic activity can help to lower the deficit. The joint committee also said the president’s tax package could add $3.7 trillion to the nation’s debt over the next decade.
Mr. Miran maintained on Friday that congressional analysts and others had underestimated the effects of Mr. Trump’s initial tax cuts, and had done the same this year.
“Better tax policy creates better economic growth, and better economic growth creates better revenue,” he said.
Focusing on the debt, Kevin Hassett, the director of the White House National Economic Council, said on Fox News on Thursday that there was “a lot of spending reduction in this bill,” adding that the Trump administration would seek additional savings as the bill moved through the Senate.
The prospect of a worsening fiscal imbalance prompted Moody’s Ratings just last week to downgrade the U.S. credit rating, citing Republican tax cuts and the proclivity of past G.O.P. administrations to spend. Party lawmakers swiftly rejected the finding, but bond markets took notice, sending yields on longer-term U.S. debt higher. Soft demand at an auction of 20-year Treasuries on Wednesday gave markets another jolt, pushing up bond yields and weighing on U.S. stocks.
Mr. Trump sent markets into another tailspin on Friday as he abruptly shifted his attention to tariffs. He attacked the European Union and threatened to raise tariffs on its exports to a flat rate of 50 percent. He signaled a mixed appetite for negotiations, telling reporters in the Oval Office: “I don’t know. We’re going to see what happens.”
The president also took aim at Apple, signaling he would impose a 25 percent import tax on iPhones, months after his administration relaxed some of its trade policies to aid tech giants. Mr. Trump later suggested his new tariffs might also apply to Samsung.
The S&P 500 fell nearly a percentage point on Friday and pushed the U.S. dollar lower against a basket of its peers. Many from Washington to Wall Street yet again scrambled to decipher Mr. Trump’s intentions — and sort out the extent to which the president is serious, bluffing or set to walk back his policies again.
Some companies, including Walmart, have said they may have to raise prices as a result of the president’s global trade war. (Karsten Moran for The New York Times)
Some businesses have forecast price increases as a result of Mr. Trump’s tariff threats. A report this week from Allianz found that many businesses are trying to push the added tariff costs onto suppliers or consumers, with roughly half of its survey respondents saying they may increase prices.
The potential for rising prices while growth is slowing poses a unique challenge for the Fed and its voting members, forcing them to reconcile with conflicting missions — a goal to pursue low, stable inflation, and a desire to sustain a healthy labor market.
“The bar for me is a little higher for action in any direction while we’re waiting to get some clarity,” Austan Goolsbee, the president of the Chicago Fed and a voting member on this year’s rate-setting committee, told CNBC on Friday.
Mr. Goolsbee recalled a recent exchange with the chief executive of a construction business, who said: “We’re now in a put-your-pencils-down moment.” Businesses, Mr. Goolsbee said, now “have to wait if every week or every month or every day there’s going to be a new major announcement.”
“They just can’t take action until some of those things are resolved,” he added.
May 24, 2025
New York Fed Official Says Overnight Lending Facility Will Play a Bigger Role
As the Federal Reserve continues to wind down its balance sheet and navigate a changing interest rate landscape, the central bank’s standing overnight lending tool—the Standing Repo Facility—is poised to play a bigger role in stabilizing short-term borrowing costs, a top New York Fed official said Monday.
Roberto Perli, the manager of the System Open Market Account (SOMA) at the Federal Reserve Bank of New York, told an audience at a fixed-income conference in Manhattan that the Standing Repo Facility (SRF) will likely take on greater prominence as a backstop for overnight funding markets as excess reserves in the banking system continue to decline.
“As the Fed’s balance sheet normalizes, and reserves become less abundant, we expect the Standing Repo Facility to be increasingly important in maintaining control over short-term interest rates,” Perli said. “It provides a ceiling on overnight borrowing costs and supports the effective transmission of monetary policy.”
A Quiet Corner of Monetary Policy Grows Louder
The Standing Repo Facility, launched in July 2021, allows eligible counterparties—primarily large banks and primary dealers—to borrow overnight cash from the Fed in exchange for high-quality collateral, such as Treasurys, agency debt, and agency mortgage-backed securities. The facility effectively acts as a cap on overnight interest rates by offering liquidity at a fixed rate—currently set at 5.5%, the upper bound of the federal funds target range.
Though underutilized for much of its existence, the SRF is now expected to play a critical role as the Fed continues reducing its holdings of Treasurys and agency MBS, a process known as quantitative tightening (QT). The Fed’s balance sheet has declined to just under $7.4 trillion, down from a peak of nearly $9 trillion in 2022.
As QT progresses, bank reserves are gradually declining, increasing the risk of stress in overnight funding markets—a risk the SRF is designed to mitigate.
“The SRF helps avoid spikes in repo rates that could spill over into broader funding markets,” Perli explained. “It’s not just a tool of last resort—it’s a structural part of the post-pandemic monetary policy framework.”
Fed officials are keen to avoid a repeat of the September 2019 repo market turmoil, when a sudden shortage of bank reserves caused overnight lending rates to spike above 10%. That episode, which occurred before the pandemic-era balance sheet expansion, prompted the Fed to eventually launch the SRF as a standing facility.
Perli emphasized that the Fed is aiming for a “minimally ample” reserve regime—enough reserves to support smooth market functioning without flooding the system. In such an environment, the SRF would serve as a safety valve, absorbing fluctuations in liquidity demand.
Wall Street analysts see the Fed’s messaging as a clear signal that short-term repo markets will become a key battleground in monetary policy implementation.
“The SRF is no longer just a theoretical backstop—it’s becoming a live tool in rate control,” said Priya Misra, head of global rates strategy at TD Securities. “As QT reduces excess liquidity, we’re going to see more frequent use of this facility, especially in periods of tax payments, bill issuance, or market stress.”
In recent months, repo market participants have seen growing usage of the reverse repo (RRP) facility decline, while demand for SRF remains near zero—but that dynamic could change quickly if reserves fall too far.
“The Fed is trying to thread a needle,” said Joseph Abate, repo market expert at Barclays. “They want to shrink the balance sheet without triggering another funding squeeze. The SRF is their insurance policy.”
Perli also noted that an active SRF helps the Fed maintain the integrity of its interest rate corridor, ensuring that market rates do not drift too far from the policy rate. With the federal funds target range currently at 5.25%–5.50%, the SRF ensures that no institution pays more than the upper bound for overnight funds.
Moreover, the SRF could take on additional importance if future geopolitical shocks, debt issuance surges, or year-end liquidity pressures push up repo rates.
“This facility helps the Fed maintain monetary control without needing to keep reserves excessively high,” said Julia Coronado, president of MacroPolicy Perspectives. “It’s part of a more flexible, responsive monetary toolkit.”
Fed officials are widely expected to slow the pace of QT later this year, especially as money market funds shift from the Fed’s reverse repo facility into higher-yielding T-bills. Perli declined to speculate on when QT might end but reiterated that money market stability remains a core priority.
The next major test for the SRF could come during the mid-June tax payment period, when Treasury cash balances surge and drain reserves from the system.
For now, the SRF’s mere presence is helping anchor market confidence—but as the Fed walks a tightrope between inflation control and liquidity management, that backstop could soon become a front-line tool.
Key Facts:
- Standing Repo Facility Rate: 5.5% (as of May 2025)
- Fed Balance Sheet Size: $7.4 trillion (down from $9 trillion in 2022)
- Launch Date of SRF: July 2021
- Usage: Currently near zero, but expected to increase as reserves decline
- Eligible Collateral: Treasurys, agency debt, agency MBS
- Fed Funds Target Range: 5.25%–5.50%
May 22, 2025
Markets Decline Amid Worries Over U.S. Debt
The United States’ loss of its last triple-A credit rating and mounting concerns about government debt are threatening to disrupt the relative calm in financial markets that has prevailed since President Trump began pausing tariffs early last month.
One factor jarring markets is a bill in Congress that would make Mr. Trump’s signature 2017 tax cuts permanent and could add trillions of dollars to federal debt. A House committee voted to approve the bill on Sunday night although it was expected to remain a focus of contentious congressional debate.
On Friday, the ratings firm Moody’s cited the legislation, along with broader concerns about the fiscal deficit and growing debt costs, when it downgraded the credit rating of the United States. The move by Moody’s means that all three major rating agencies no longer consider the United States qualified for their top credit ratings.
U.S. stock futures indicated that markets would decline about 1 percent when they begin trading in the United States on Monday morning.
During Asia trading, South Korea’s Kospi and Taiwan’s Taiex indexes fell more than 1 percent. Stocks in Tokyo and Hong Kong declined about 0.5 percent. The U.S. dollar continued to weaken against other currencies including the euro and yen.
The U.S. credit rating downgrade could send further ripple effects through financial markets if it begins to shake the safe-haven status of Treasury bonds. That would likely spur global investors to demand higher premiums in return for buying U.S. debt.
The 10-year Treasury bond yield climbed to 4.51 percent in Asian trading, after closing at 4.44 percent on Friday.
Some analysts attributed the rise in yields to the credit downgrade exacerbating existing concerns about Mr. Trump’s tariff agenda and the effect it may be having on the American economy.
U.S. stocks had made strong gains last week when investors reacted positively to the U.S.-China deal to cut tariffs.
Analysts say that the downgrade of the U.S. credit rating could train a spotlight on fiscal spending and interest rates paid on government debt in other countries as well. That includes in Japan, which has one of the highest debt-to-GDP ratios in the world.
When Standard & Poor downgraded U.S. Treasury bonds in 2011, the move contributed to significant volatility in global financial markets. All three major stock indexes declined in the United States, dragging on markets in Asia and Europe as well.
May 19, 2025
The Federal Reserve will reduce its staff by 10% over the next few years
The Federal Reserve will reduce its work force by 10 percent over the next several years to ensure the institution is “right-sized and able” to carry out its duties to foster a healthy economy.
Jerome H. Powell, the chair of the central bank, announced the plan on Friday in an internal note to staff members reviewed by The New York Times. Certain employees will be eligible to participate in a voluntary deferred resignation program that is aimed at giving those close to retirement the option of an earlier exit. That offer will apply only to people at the Washington-based Board of Governors.
Cuts are expected to be made across the entire Federal Reserve System, including the 12 regional banks. Roughly 2,400 people will be affected.
“I have directed the leadership of the Federal Reserve, here at the board and across the system, to find incremental ways to consolidate functions where appropriate, modernize some business practices and ensure that we are right-sized and able to meet our statutory mission,” Mr. Powell said in the memo.
The Fed earlier imposed a hiring freeze on permanent workers as part of its efforts to align with the Trump administration’s decree that no federal position vacant at the time could be filled or new positions created. It also took steps to distance itself from diversity issues as well as those related to climate change — initiatives that President Trump has opposed.
The Fed is a politically independent institution, meaning it is not legally obligated to carry out orders by the executive branch. That buffer from the White House is being legally challenged by the Department of Justice, which has sought more sway over independent agencies.
The announcement on Friday mirrors an effort by the Fed during the Clinton administration to cull its work force, which Mr. Powell cited in his note. At that time, there were “governmentwide efforts to improve efficiency,” as is the case “now,” Mr. Powell said.
Yet at a congressional hearing in February, Mr. Powell pushed back on the idea that the Fed had too many employees. “Overworked, maybe, not overstaffed,” he said.
Mr. Trump is pursuing a similar goal, although much more aggressively than past administrations have. The newly formed Department of Government Efficiency, led by the billionaire entrepreneur Elon Musk, has taken to gutting the federal work force, including shuttering agencies wholesale. Tens of thousands of government employees have since left their jobs.
The Fed’s decision is not tied to the ongoing initiative by DOGE, although some members of the central bank’s staff were contacted this year via email by Mr. Musk’s group, according to people familiar with the matter.
“The Federal Reserve is a careful and responsible steward of public resources,” Mr. Powell said in his note on Friday.
May 16, 2025
Why the Fed Might Keep Interest Rates Steady Until September
More than 20 times during a roughly 45-minute news conference on Wednesday, Jerome H. Powell, the chair of the Federal Reserve, referenced the idea of waiting to see how President Trump’s policies would ripple through the economy before taking any action on interest rates.
Mr. Powell, who spoke after the Fed opted to extend a pause on interest rate cuts, said the central bank had the flexibility to do so because the economy overall was still on solid footing. He also stressed that it was the most prudent decision at a time when there was so much uncertainty about how much tariffs would raise inflation and slow growth.
“It’s really not at all clear what it is we should do,” he told reporters.
Forecasts for when the Fed will restart interest rate cuts have been in a constant state of flux, whipsawing on every twist and turn in the global trade war or on any new data point that sheds a sliver more light on the state of the economy. But what is starting to set in is that the Fed may in fact be on hold for quite a bit longer than initially expected — and far longer than Mr. Trump would like. The president on Thursday again pressed Mr. Powell to lower interest rates, calling him a “fool.”
Economists are increasingly coalescing around September as the most plausible time for the Fed to restart interest rate cuts. Some have penciled in an even later start date. The longer the Fed waits, the higher the odds that officials may have to lower borrowing costs more aggressively to shore up the economy.
“The likelihood of them moving doesn’t really start to increase until you get to the September meeting,” said Tiffany Wilding, an economist at asset manager Pimco. She said a larger-than-usual half-point cut would be firmly on the table at that point and that she expects the Fed to keep lowering rates into the next year.
“I don’t think that using the playbook of 25 basis point increments per meeting for cuts is the right one to use here,” Ms. Wilding said, pointing to the possibility that the economy could weaken abruptly.
Mr. Powell on Wednesday was clear that the current backdrop was not one in which the Fed could be pre-emptive with interest rate cuts — unlike during Mr. Trump’s first-term trade war when inflation was subdued and the economy was at risk of stagnating.
That is primarily because inflation has been running above the central bank’s 2 percent target for four years, but also “because we actually don’t know what the right response to the data will be until we see more data,” Mr. Powell said.
What that means in practice is that the Fed will need to have concrete evidence in hand that the economy is languishing before feeling confident that it can lower interest rates without having to worry about stoking inflation. That could take time to show up.
“In their view, they can’t really make policy on the basis of a forecast,” said Dean Maki, chief economist for Point72, a hedge fund. “Right now, there is just too much uncertainty about where policy is going to go, about how that policy is going to ripple through the economy and about what the timing of that is.”
So far, the data the Fed has points to low layoffs and an overall solid labor market. Spending has slowed but not stalled completely. The question is how long that lasts if consumers have already turned much more downbeat about the outlook, and businesses are seeing early signs of sluggish sales and have begun to retrench.
Mr. Maki is still forecasting a July cut, but said he could envision the Fed pushing that back to September if there are not yet “significant signs” that the labor market is deteriorating. That would include rising unemployment claims and a couple of soft monthly jobs reports.
Traders in federal funds futures markets are still holding out some hope for a downshift in borrowing costs in July, after scaling back their bets for a June move on Wednesday. But there are reasons to think that the data will not have turned decisively enough in time for that.
The Trump administration is working against a July 9 deadline to mint trade deals with countries after pausing more onerous tariffs initially announced in April. On Thursday, it is set to announce its first agreement with the United Kingdom.
Top officials will also meet with their counterparts in China in Geneva, Switzerland this weekend to work toward a deal to reduce the minimum 145 percent tariffs Mr. Trump put in place on imports from the country.
White House officials are also wrangling with lawmakers to pull together a multi-trillion-dollar tax cut package by July 4.
With trade policy particularly fluid, Christopher J. Waller, a Fed governor, acknowledged last month that it was unlikely that “anything dramatic” would happen in the economic data before there was more clarity on that front.
“I don’t think you’re going to see enough happen in the real data in the next couple of months, until you get past July,” he said. The Fed will have only two more job reports in hand by the time it meets at the end of that month in addition to three inflation reports.
Much will depend on how significantly tariffs, which are a tax on imports, stoke inflation. If protectionism leads to persistently higher prices, that would have much more far-reaching consequences for the economy than a one-off spike. A lot will also depend on how consumers respond to the increase.
Ms. Wilding expects the pop in inflation from tariffs to come before any notable rise in the unemployment rate. One theory is that higher prices will cause consumers to cut back on spending, further weighing on companies’ already-strained margins. Layoffs may follow if the downshift is big enough, but they may not be the first way in which businesses try to reduce costs given the acute labor shortages most faced in the aftermath of the pandemic.
Michael Feroli, the chief economist at JPMorgan, expects the labor market to weaken enough by late summer to prompt the Fed to cut in September. Kathy Bostjancic, the chief economist at Nationwide, has also penciled in a cut then, but thinks the Fed will have to go big with a half-point reduction.
Other economists see the Fed on hold for even longer. Deutsche Bank’s team has the first cut coming in December. Larry Meyer, a former Fed governor who is now an economist at research firm LHMeyer, expects no rate cuts until 2026.
“The first thing the Fed has to do is contain inflation expectations in word or deed,” he said. “I think that means not easing this year.”
Market-based measures of inflation expectations, to which the Fed pays closest attention, suggest that inflation will indeed remain contained after jumping this year. Survey-based gauges paint a more worrying picture, a divergence that some economists say is a sign that expectations about future inflation are not as under control as officials would like.
Mr. Powell on Wednesday said there was “no cost” to the Fed waiting for now to make a policy move. The central bank was “well positioned to respond in a timely way to potential economic developments,” he said, suggesting the central bank would quickly adjust course if the circumstances changed. If the Fed saw a “significant deterioration,” Mr. Powell said, in the labor market, it would “look to be able to support that.”
He added one caveat, however: “You’d hope it wasn’t also coming at a time when inflation was getting very bad.”
May 8, 2025
Donald Trump’s preferred choice to head the Fed was banker Kevin Warsh
Kevin Warsh was sitting in the East Room of the White House when President Donald Trump took a beat to praise the former central banker. At the January 2020 signing ceremony, Trump turned to the former Federal Reserve governor — a finalist for the central bank’s top job a couple of years earlier — and delivered an unscripted aside.
“I would have been very happy with you,” Trump said, singling out Warsh. “I could have used you a little bit here. Why weren’t you more forceful when you wanted that job?”
It was yet another implicit swipe at Jerome H. Powell, the Fed chair Trump had ultimately selected in late 2017 but soon soured on — and a revealing moment for Warsh, whose close ties to Republican economic circles have long kept him in the conversation for top policymaking roles.
Now, with about a year remaining of Powell’s term as chair, Warsh is once again seen as a leading contender to run the central bank. The banker had previously served on the seven-member Fed board from 2006 to 2011, becoming, at 35, the youngest governor in its history.
Warsh has long been viewed by Wall Street as a strong contender to succeed Powell, whose policies he has criticized. Warsh was also briefly under consideration to become Trump’s compromise pick to run the Treasury Department amid infighting for the job between Wall Street financier Scott Bessent and brokerage executive Howard Lutnick last fall. Bessent, who ultimately became treasury secretary, told Bloomberg last month that White House officials will start interviewing for the Fed job later this fall.
If nominated, Warsh could face questions about his long-standing, hawkish views over inflation and the significant expansion of the Fed’s balance sheet. He has argued that the Fed’s extended reliance on low interest rates and large-scale asset purchases has blurred the line between monetary and fiscal policy, encouraging unsustainable levels of government spending. That view could put him at odds with a White House eager to spur faster growth and looser monetary policy to juice the economy.
Still, some Fed watchers see Warsh as a more plausible option compared with some of the people Trump considered for the central bank during his first term. Economics commentator Judy Shelton and the late Herman Cain — a former GOP presidential candidate and restaurant executive — failed to get on the Fed board when it was clear a significant number of Republican senators wouldn’t support them. Cain wasn’t even nominated.
Others expected to be in the mix include Kevin Hassett, who heads the White House National Economic Council, and Bessent, a former hedge-fund executive. Fed governor Christopher Waller is also seen by Fed watchers as a possible pick.
Warsh has been out of government for nearly 15 years, some critics said, which could put him at a disadvantage with other officials vying to succeed Powell. Neil Dutta of Renaissance Macro Research noted that Powell and his immediate predecessors, Janet L. Yellen and Ben S. Bernanke, were elevated to the top job from senior roles within the central bank.
“He hasn’t been anywhere close to making decisions on matters of monetary policy in a long time. All he does is criticize decisions after they are made,” Dutta said.
White House spokesman Kush Desai said any discussion about potential personnel and nomination decisions that have not been officially announced by the White House is “pure speculation.”
Trump has said he doesn’t intend to fire Powell, despite repeatedly criticizing the Fed leader for not lowering interest rates to soften the effects of his disruptive trade policies. Still, it’s unclear when Trump will actually be able to replace Powell. His term as chair runs until May 2026, but he can stay on the Fed’s board as a governor until January 2028. Powell hasn’t said whether he’ll step down immediately once his term as chair ends. The earliest chance Trump has to install a new Fed governor may not come until January, when Adriana Kugler’s term expires.
Warsh began his career in 1995 at Morgan Stanley, where he worked as a mergers and acquisitions banker. He joined the George W. Bush administration in 2002 as an economic adviser, and four years later was appointed to the Fed. There, he served as a liaison between the central bank and Wall Street during the 2008 financial crisis, before stepping down in 2011.
In a speech last week on the sidelines of the spring meetings of the International Monetary Fund and World Bank in Washington, Warsh criticized the Fed for “systematic errors” that allowed inflation to surge coming out of the pandemic. The Fed’s inability to control inflation, along with what he described as its efforts to cater to political issues such as climate change, had contributed to the challenges to its independence from the president.
“The Fed’s current wounds are largely self-inflicted,” Warsh said at an event hosted by the Group of Thirty, an independent global body that includes prominent economic leaders and policymakers. He characterized his lecture as a “love letter” to the Fed but said its officials should be subjected to “serious questioning, strong oversight, and, when they err, opprobrium.”
Warsh said that the Fed should narrow its focus but could have been more outspoken about the risks of large federal deficits, which he blamed the central bank for helping to facilitate through the growth of its balance sheet since the 2008 financial crisis.
He said he supported the Fed’s initial bond-buying stimulus push — helping to pull the economy out of a sharp, crisis-triggered downturn — but he took issue with the Fed continuing those efforts in the years after the crisis.
Congress found it considerably easier appropriating money knowing that the government’s financing costs were effectively subsidized by the central bank, Warsh said. Other Fed watchers say the lackluster economic recovery, featuring high unemployment and below-target inflation, necessitated looser monetary policy for longer.
Warsh is married to Estée Lauder heiress Jane Lauder. Since leaving the Fed, he has been a lecturer at the Stanford Graduate School of Business, a scholar at the conservative Hoover Institution and a business partner of investor Stanley Druckenmiller.
Warsh’s ties to Republican circles are extensive. His father-in-law, billionaire cosmetic heir Ronald Lauder, is also a Trump ally who first floated the idea of the United States buying Greenland during the first term.
May 3, 2025
Next year, the White House budget plan outlines $163 billion in decreased federal outlays
The White House on Friday will release a partial budget proposal that calls for $163 billion in cuts to federal spending in the next fiscal year, a person familiar with the matter confirmed.
The upcoming “skinny budget” will propose cuts to a broad array of federal spending on environmental, education, foreign aid and health-care programs, including many of those already targeted for reductions by the Trump administration or billionaire Elon Musk’s U.S. DOGE Service, the person said. Among the agencies proposed to see reductions include the Environmental Protection Agency, the Energy Department and the Department of Housing and Urban Development, among others, the person said.
The Wall Street Journal first reported the budget requests. The person spoke on the condition of anonymity to describe documents not yet made public. The White House is expected to release a much lengthier, traditional budget later in the month.
Presidential budget requests are just that — requests for Congress to enact certain spending levels. But they lay out broad priorities, and with Republican majorities in both the House and Senate, President Donald Trump may be able to get a lot of what his proposal seeks written into law.
The budget has gotten outsize attention this year because the Trump administration has already tried to stretch federal spending laws in novel ways. White House Office of Management and Budget Director Russell Vought has argued that the administration should have more authority to unilaterally cancel or redirect federal spending without congressional approval. Musk has also claimed to have cut more than $100 billion in federal spending from this fiscal year, which began in the fall, though the courts have ruled that the administration is required to spend much of money because Congress has passed laws mandating it.
The budget proposal to be released Friday would set spending levels for the 2026 fiscal year, which will begin Oct. 1. The $163 billion in requested cuts would come from a portion of federal outlays known as “nondefense discretionary” spending, which excludes the Pentagon as well as programs such as Social Security, Medicare and Medicaid — which collectively make up the bulk of what the government spends every year.
The person familiar with the matter confirmed that the budget proposes a roughly 23 percent cut in nondefense discretionary spending for the next fiscal year from current levels.
The budget proposal also calls for a $5 billion cut from the National Science Foundation and defunding the National Endowment for Democracy, the person said, as well as eliminating the U.S. Institute of Peace.
Congressional Republicans have thus far balked at enshrining into law even a small fraction of the cuts implemented by Musk, including the elimination of the U.S. Agency for International Development, which Musk’s DOGE group unilaterally shut down over an early February weekend.
May 2, 2025
Trump Aims to Remove Powell from the Fed, with Kevin Warsh Ready to Step In
President Donald Trump on Thursday again made clear his disdain for Federal Reserve Chair Jerome Powell, going so far as to say the central banker’s “termination can’t come fast enough” and saying in an Oval Office event that Powell will “be out of there real fast” if he wants.
While many experts say the president does not in fact have the power to fire the Fed chief due to policy differences, Trump has made clear he’s willing to break with norms and precedent, even in the face of potentially monumental repercussions.
Regardless, the leading contender to lead the US central bank under Trump, whether at the end of Powell’s term in May 2026 or earlier, reportedly appears to be Kevin Warsh, a former Fed governor who previously was under consideration to be Trump’s Treasury secretary for the president’s second term and was a candidate for the top job at the Fed during Trump’s first term.
The Budgets previously reported that Warsh was again on Trump’s shortlist to become Fed chair this time around, once Powell’s time is up. In fact, Trump’s selection of Scott Bessent to lead the Treasury Department was seen by many as a way to leave Warsh open for an eventual appointment as Fed chair.
Treasury Secretary Scott Bessent told Bloomberg earlier this week that the administration will start interviewing candidates for Powell’s successor “sometime in the fall.” And with speculation swirling over whether Trump will try to oust Powell before his term ends, Bessent said that “monetary policy is a jewel box that’s got to be preserved.”
But who is the man who might soon lead one of the world’s most powerful financial institutions?
The man who could be the next Fed chair
Warsh, 55, was a vice president and executive director at Morgan Stanley in the company’s mergers and acquisitions division before serving as a special assistant to then-President George Bush for economic policy and as executive secretary at the National Economic Council.
Like Powell, Warsh does not have a graduate degree in economics. He graduated from Harvard Law School in 1995.
Bush appointed Warsh to the Fed’s Board of Governors in 2006, where he served during the height of the Great Recession as chief liaison to Wall Street.
In that role, he helped coordinate the sale of Bear Sterns to JPMorgan Chase. But he also allowed Lehman Brothers to go under in 2008, a watershed moment for global financial markets. Warsh resigned from the Fed in 2011 after publicly voicing his opposition to the central bank’s plan to buy $600 billion worth of bonds to inject more money into the economy.
More recently, Warsh advised Trump’s transition team on economic policy after the November election. In a January opinion piece in The Wall Street Journal, he joined Trump in criticizing the Fed for letting inflation rise sharply during and after the pandemic.
Warsh currently serves as a distinguished economics fellow at the Hoover Institution, a conservative think tank; and is a visiting scholar at Stanford University’s Graduate School of Business.
Additionally, he is a member of the nonpartisan Congressional Budget Office’s panel of advisers. He is married to billionaire Jane Lauder, granddaughter of Estée Lauder, the late cosmetics industry mogul.
His views on economic events and the Fed
In his Wall Street Journal op-ed, Warsh wrote that high inflation rates over the past few years arose from “a government that spent too much and a central bank that printed too much.” However, most mainstream economists attribute inflation’s eruption in 2021 mostly to pandemic-induced shocks to demand and supply.
Warsh wrote that “the Fed should steer clear of political prognostications, not just in word but in deed,” pointing to minutes from a Fed meeting last year indicating officials believed Trump’s proposed policies could fuel inflation.
In an interview with Fox Business ahead of the Fed’s latest policy meeting last month, Warsh said the turmoil sparked by Trump’s tariff war indicates an economy that “is transitioning.”
“The president inherited a fiscal and economic and regulatory mess, and it’s going to take a little digging out to be on a stronger platform for growth,” he said. “Rome wasn’t built in a day, so this will take some time.”
When asked about the likelihood of Trump’s tariffs stoking inflation, Warsh said that “inflation is a choice, and the Fed has made a lot of bad choices over these last several years.”
“The president has to take matters into this own hands and try to kill inflation by reducing government spending,” he said.
April 19, 2025
Concerns of a Financial Panic Dampen Trump’s Decision to Fire Powell
President Trump this week revived a longstanding threat against Jerome H. Powell when he accused the Federal Reserve chair of “playing politics” and moving too slowly to lower interest rates. But privately, according to people close to Mr. Trump, the president has for months been aware that trying to oust Mr. Powell could inject more volatility into jittery financial markets.
Investors are already uneasy after a period of tumult due to a blitz of tariffs announced by the administration this month. Undermining the political independence of the Fed, which is seen as critical across Wall Street, could risk a much more significant financial panic.
“If I want him out, he’ll be out of there real fast, believe me,” Mr. Trump told reporters in the Oval Office of the White House on Thursday when asked about Mr. Powell. The warning came on the heels of an early morning social media post in which Mr. Trump said, “Powell’s termination cannot come fast enough!”
Mr. Trump’s advisers have repeatedly told him that firing Mr. Powell is both legally and financially fraught — and that the uncertainty could cause a significant downturn in financial markets. Mr. Trump, at least for the moment, has seemed persuaded, the people said.
For months, Mr. Trump has privately fretted about the prospect of a Great Depression-scale event’s happening on his watch — a scenario he shorthands in conversations as “1929.” But the events of the past two weeks so alarmed some of Mr. Trump’s closest advisers, including his Treasury secretary, Scott Bessent, that Mr. Trump himself seems to have absorbed how close they came to a financial meltdown.
Mr. Trump’s decision at the beginning of the month to announce historic tariffs on nearly all of the country’s trading partners and aggressively escalate his global trade war sent financial markets into a tailspin. Stocks plummeted, and an alarming sell-off in U.S. government bonds and the dollar fanned fears that the country was starting to lose its vaunted status as the safest corner in the financial system.
After the scope of Mr. Trump’s tariffs became clear, Mr. Powell cautioned that the policies would lead to both higher inflation and slower growth. His comments suggested that the bar would be high for the Fed to lower rates, after a series of cuts last year.
Mr. Trump soon reversed course and paused many of his tariffs for 90 days, citing a “queasy” bond market. But that reprieve ended swiftly as Mr. Trump raised tariffs on Chinese imports to at least 145 percent even as he exempted an array of the most widely used consumer electronics and heralded imminent trade deals with other countries. The whiplash has kept financial markets on edge and has done little to alleviate Mr. Powell’s concerns about the economic outlook.
At an event at the Economic Club of Chicago on Wednesday, Mr. Powell made clear that it was the Fed’s “obligation” to ensure that “a one-time increase in the price level does not become an ongoing inflation problem” even as he reiterated his warnings about the prospects of slower growth. He also stressed that the Fed could afford to be patient on taking further action on interest rates until it had more clarity about the outlook.
Those comments, coupled with the fact that the European Central Bank was readying to lower interest rates on Thursday, appeared to set off Mr. Trump’s tirade against Mr. Powell.
President Donald Trump delivers remarks after signing an executive order on reciprocal tariffs in the Oval Office at the White House in Washington, DC, on February 13. (Andrew Harnik/Getty Images)
Even before the recent bond market turmoil, it seemed to advisers that Mr. Trump was leery about firing Mr. Powell. Mr. Trump regularly complains about how “terrible” Mr. Powell is and that he believes the Fed chair is deliberately keeping interest rates high to hurt him, for political reasons, an adviser said, but the president has not seemed serious about replacing him imminently.
Last week, Mr. Bessent, who described the Fed’s independence as a “jewel box that’s got to be preserved,” said the White House would begin interviewing candidates this fall to replace Mr. Powell. Mr. Trump had nominated Mr. Powell in his first presidential term, and President Joseph R. Biden Jr. renominated him. Mr. Powell’s term as chair officially ends May 2026, although his term as a governor runs through 2028, suggesting that he could stay on the Fed’s Board of Governors if he wanted to. Mr. Trump will first be able to fill a vacancy in January, when the term expires for Adriana Kugler, a sitting governor.
The president has already appointed Michelle Bowman, a current governor, to be the next vice chair for supervision in charge of regulating Wall Street. That position became available in February after Michael Barr, who stayed on as a governor, stepped down from the position to avoid a protracted legal battle with Mr. Trump that he worried would hurt the central bank.
Kevin Warsh, a former Fed governor with close ties to Mr. Bessent, is seen as a leading contender to serve as the next chair. During the transition, Mr. Trump was interested in the idea of making Mr. Warsh, whom he had considered for Fed chair in his first term, his Treasury secretary. The president also considered installing him as Fed chair to replace Mr. Powell before the end of his term, according to people briefed on his thinking. At the time, Mr. Trump inquired about his legal rights to fire Mr. Powell, and what the broader effects of such a move would be.
Mr. Powell has been emphatic that the law does not permit a president to remove the chair of the central bank nor meddle directly with the institution. The Federal Reserve Act says members of the Fed’s seven-strong Board of Governors can be removed only “for cause,” which is interpreted as serious misconduct and other violations.
When asked by reporters on Friday about the possibility of firing Mr. Powell, Kevin Hassett, the director of the National Economic Council, said, “The president and his team will continue to study that matter.” Later in the day, Mr. Trump again pushed the Fed chair to lower rates but didn’t discuss his future.
The Fed’s independence from the White House has historically been seen as crucial to the stability of the economy and the global financial system. Congress granted the central bank this status to ensure it could make policy decisions related to the economy and the banking system free from political interference.
The fear is that Mr. Trump will seek to erode that protection. Already, he has issued an executive order that seeks to exert authority over how the Fed oversees Wall Street. Monetary policy decisions were exempted, but the expansive nature of the order has raised questions about how long that separation will last.
Mr. Trump has also fired officials at the Federal Trade Commission, the Merit Systems Protection Board and the National Labor Relations Board, removals that have prompted legal challenges that the Supreme Court is set to hear.
What the Trump administration is arguing is that the precedent — which stems from a 1935 ruling commonly referred to as Humphrey’s Executor — infringes on the president’s executive power. The ruling’s proponents argue that it insulates independent agencies from undue political influence.
This month, Chief Justice John G. Roberts Jr. temporarily authorized Mr. Trump’s dismissals while the challenges move forward in court. The chief justice, acting on his own, issued an “administrative stay,” an interim measure intended to give the justices some time while the full Supreme Court considers the matter.
Mr. Powell said on Wednesday that he did not expect the court’s decision to apply to the Fed, but that it was something the central bank was “monitoring carefully.” The Fed’s independence is a “matter of law” and “very widely understood and supported in Washington and in Congress, where it really matters,” he added.
April 19, 2025
Merger between Capital One and Discover, Two Major Credit Card Companies, Receives Approval
Two of the country’s largest credit card companies are poised to merge after key banking regulators approved the deal on Friday, despite concern among some advocacy groups and lawmakers that it could lead to higher fees and less choice for consumers.
Capital One received the green light from the Federal Reserve Board and the Office of the Comptroller of the Currency to acquire Discover Financial Services in a roughly $35 billion deal announced in February 2024. Capital One, the nation’s ninth-largest bank, with $479 billion in assets, issues credit cards on networks run by Visa and Mastercard. Acquiring Discover will give it access to a credit card network of 305 million cardholders, adding to its base of more than 100 million customers.
The banks, which said they expected the deal to close on May 18, have argued that the merger would create a stronger competitor to the giants in the network space: Visa and Mastercard. The deal will “increase competition in payment networks, offer a wider range of products to our customers, increase our resources devoted to innovation and security, and bring meaningful community benefits,” Michael Shepherd, the interim chief executive of Discover, said in a statement on Friday.
But after the deal was announced, it was swiftly met with concerns from consumer advocates about concentration in the credit card market, since the country’s biggest credit card issuer would control its own network.
“The feds got this one wrong — so it falls to state attorneys general to intervene against the harmful, anticompetitive Capital One-Discover merger,” Jesse Van Tol, the chief executive of the National Community Reinvestment Coalition, said in a statement. The group, which promotes access to banking services, has opposed the deal since it was announced.
In announcing its approval, the Fed also said it had fined Discover $100 million for overcharging certain interchange fees — transaction fees that a merchant’s bank pays to the credit card-issuing bank — from 2007 to 2023. The Office of the Comptroller of the Currency, in a statement on Friday, said its approval of the deal was conditional on the banks’ addressing “the root causes of any outstanding enforcement actions against Discover Bank and remediation of harm.”
Capital One cleared another significant obstacle to its acquisition of Discover after the Justice Department, which also has authority to block banking deals, told regulators this month that it didn’t see sufficient competition concerns to block the merger. Banking analysts said the move indicated that Trump administration regulators might be more open than the Biden administration to bank mergers.
During the Biden administration, the Justice Department told regulators that it was concerned, in part, about the deal’s impact on potential credit card users who had no credit. In the last months of the administration, the department moved to tighten oversight of banking deals, placing more stringent guidelines on how it evaluates banking deals — the first update to that framework since 2008.
In February, shareholders of both companies approved the all-stock deal, which was valued at roughly $35 billion when it was announced last year.
April 19, 2025